Most of the media attention surrounding the single euro payments area (SEPA) has centred on the banking industry, which has had to meet an ambitious timetable of legislative compliance. European banks have risen nobly to the challenge, but SEPA is fundamentally about better business for coporates. So how is business preparing for life after SEPA? The opportunities may be far greater than many perceive and the time is right for the corporate sector to assess the opportunities.
The Business Benefits
The arrival of SEPA brings many benefits to international business. Some are intuitively appealing and easy to grasp, others less obvious. Companies will be able to prepare all payment instructions in a single format, instead of one per country. In theory at least, each company need only have one euro account for all its payments and collections with clearing effected through a single solution.
The harmonisation of payment formats and processes allows companies to reduce the number of banking relationships necessary to support business across Europe. Banks will have to work harder to win transaction business and increased competition is likely to drive down the general cost of transactions. Lower transaction costs are good for business: they make existing operations more profitable and marginal business becomes viable. Companies have a lot more to gain from the new payments environment; but they face some difficult decisions regarding systems and processes. This may be a daunting task but the potential savings are a great incentive. So where are the benefits?
Moving Towards STP
The standardisation of payment information is a valuable component of SEPA compliance. Standardisation facilitates the automation of many business processes and removes some of the largest obstacles to STP. At an operational level, SEPA promotes business efficiency and makes STP a reality. Up to 70% of payment costs are associated with manual handling and reconciliation of data, so there are real and significant opportunities for savings. The introduction of SEPA moves STP from the status of corporate ambition to corporate objective. Clearly, those organisations that succeed can improve productivity and shareholder value. So where should they start?
The achievement of higher STP rates is a means to an end so it is best viewed in the context of the corporate business plan and should be aligned with business strategy. When viewed in this light, informed decisions can be made regarding the use of resources and location of specific functions. Over time, country-specific payment arrangements can be rationalised and it may even be possible to create a centralised ‘payment factory’ to support the business across all geographies. In practice, this is a big decision and is unlikely to be achieved at the outset of SEPA.
The first step towards information standardisation will be to adopt the SEPA payment format and to migrate all national payments to this standard. This format includes more detailed remittance information than most existing national standards to enable easier, automated reconciliation of incoming payments. This is beneficial in itself but also paves the way for the introduction of further improvements.
A New Role for Banks
Banks help companies succeed by providing vital support services at all levels of the financial value chain. They can help business cut processing costs and they gain economies of scale from increased transaction levels. Banks and business can pursue joint initiatives that increase automation, so payments can be made faster and exceptions identified earlier. Companies will look to their banks for support in improving business processing efficiency throughout the financial value chain. But SEPA is not just about cutting costs: it also creates the right environment to build new shared services.
Business will look for banks that can provide new services that promote efficiency and add value to the payments process. Some of these are an obvious extension of the existing payments relationship, such as the processing of non-SEPA payments and, potentially, the introduction of euro real-time payments. Others add value along the length of the payments channel, such as via a hosted direct debit mandate management service and electronic bill presentment and payment. Both of these enable businesses to offer customers new and convenient ways to pay that are of mutual benefit.
The introduction of other services creates even more opportunities, for example, e-invoicing has the potential to transform the financial supply chain. Workflow can be examined in the context of cash flow and companies can gain a deeper understanding of business processes as they relate to income and expenditure.
Gaining Momentum
The achievement of SEPA is only one strand of the Lisbon Agenda. The European Commission sees SEPA as the first step in the process of creating a more prosperous Europe founded on international trade. The commission acknowledges that SEPA is more of a journey than a destination and has endorsed the link between e-invoicing and SEPA. Work is underway to create a common European Electronic Invoicing (EEI) framework, which will be good news for business. Quite apart from making SEPA a reality, a commitment to common standards makes the proliferation of other electronic payment services seem inevitable. Business will need the support of banks to deliver these services in a timely and cost-effective way, so it is a good time for business to review what banks will offer and when.
Business needs the support of banks to succeed in the post-SEPA environment and banks that offer payment services that truly support corporate STP ambitions will stand out. Such banks see their roles in supporting strategic change as more than just providing a menu of value-added services. They see themselves enabling STP by integrating their corporate customers’ payment operations with their own through the right combination of technology and service expertise.
The rollout of SEPA challenges conventional business wisdom. International businesses want to grow faster and in many directions. They need the continual support of banks to achieve this. Banks will need to position themselves as ideal partners with which business can work over the long term to mutual advantage. SEPA marks the start of a long journey on the road to prosperous business throughout Europe. Companies that work in partnership with their banks are likely to make the best progress.